Service-provider-based network equipment market continues to decline

The worldwide service-provider-based network equipment market will continue to experience contraction, shrinking 23% from 2001 to 2002, claims a new report from Probe Research (Cedar Knolls, NJ). While Probe analysts expect to begin to see market recovery by 2004, they do not see a return to the spending levels of 2000 any time in the next few years.

Despite the gloom, there are a few reasons to be optimistic, asserts Richard Endersby, vice president of Internet infrastructure. "First," he says, "the fall in capex [capital expenditures] seen during 2001 and 2002 will not last indefinitely, and we expect to see some stability return in 2003/2004. Second, the drive toward deployment of profitable services will reward those vendors that have successfully positioned themselves to capitalize on the network edge. Many vendors have already been pushed to Chapter 11 or beyond, leading to a reduction in competition that should go some way toward stabilizing the situation."

Vendors focused on IP and edge service delivery will recover earlier from the downturn. "Cisco's role is expected to be even more significant in signaling an exit from these doldrums," says Endersby.

Secondary benefits should also come to vendors that have targeted the RBOCs and European PTTs, particularly those that offer the ability to migrate to IP, claims the report. "Multiservice boxes from vendors such as Nortel, Lucent, and several startups should benefit," adds Endersby.

Companies targeting the long-haul and optical sectors continue to have a long road ahead of them, says the report. Carriers are likely to continue the squeeze on these vendors as they leverage their existing assets for as long as possible. The semiconductor industry and server companies like Sun Microsystems, IBM, and Hewlett-Packard are likely to be leading indicators of any recovery.

For more details on the report, "Voice and Data Networks: The Next Ten Years," visit www.probe research.com.